Week in FX Asia – Bank of Japan Dissapoints Markets with Inaction Yen Rises

This week the Bank of Japan found out just how harsh and fickle a mistress the market can be. The BoJ was the darling of the market and the shining example of how a central bank should intervene. Tuesday Governor Haruhiko Kuroda and the Japanese currency suffered the brunt of the market’s criticism for their lack of action. The currency rose to 96 and has continued to rise as the week progressed. There were expectations that the BoJ would increase its monetary stimulus.

Comments from the influential Mr. Yen summed up the feeling around Prime Minister Shinzo Abe’s third arrow of reform. Eisuke Sakakibara is pessimistic given the proximity of elections. Abe can’t introduce new reforms until fall to avoid compromising the results of the elections. Abe’s bold statements and follow through by Kuroda was seen as the one-two punch needed to get Japan back on track, but the expectation was that they would not stop there.

Sakakibara does not expect reforms before or after the election and adds his voice to the critics of Abe’s third arrow of reform as the first arrow of BoJ intervention is lacking in long-lasting impact.

Next week Japan will continue to be part of a G8 meeting where there could be rumblings of currency intervention. Although with the current state of the Yen this is less likely as the weakening could be unsustainable. The G8 might have suspected this from the start. Industrial production indicators will be released as well as foreign investment which will give insight on how well Abenomics is working on the real economy and investment.

• Bank of Japan Member Suggests Limiting QE to 2 Years
• China Inflows Rise in May
• China Forex Purchases Rise in May
• Investors Reassess their Outlook for Japan
• Australian Employment Beats Expectations in May
• World Bank: Next Big Risk for Asia is Rising Interest Rates
• World Bank Cuts Growth Forecasts – Asian Stocks Decline
• Machinery Orders Rise in Japan
• Japan Farm Union to Continue Opposing TPP Trade Agreement
• BOJ not panicking as JGB yields volatility “normal”
• Mr Yen Pessimistic About Major Reforms in Japan
• Bank of Japan Policy Unchanged Disappoints Markets
• Central Bank Fears Strengthen Yen
• RBI’s Moves Limited by Record Low Rupee
• Japan Considers Tax Reforms to Boost Corporate Capital Spending
• Japan Current Account Surplus Doubles from Last Year
• China Leaders to be Tested on Resolve
• A China Downturn Could be Lengthy
• More Pressure Likely on Abe’s Growth Strategy
• Japan’s Economy Forecast Raised to 4.1% vs initial 3.5% estimate

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